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TO:DOMESTICINSURERSUSING THENAICFRATERNAL,HEALTH,LIFE, PROPERTYCASUALTY,ORTITLEBLANK ANDINSTRUCTIONS
SUBJECT:REQUESTSFOR EXEMPTIONFROM ANNUAL AUDITEDFINANCIALREPORTANDREQUIRED RELATED INFORMATION[31PACode§ 147]
FROM:FINANCIALANALYSIS DIVISION
Under31Pa.Code,Chapter147(“Chapter147”),thePennsylvaniaInsuranceDepartment(“Department”)isrequiringthesubmissionofanannualauditedfinancialreportandrelatedinformation.TheregulationisavailableatChapter147.AnimplementationguideispublishedasAppendixGintheNAIC’sAccountingPracticesandProceduresManual.
DetailednotesregardingthereportingrequirementsinChapter147areavailableontheDepartment’swebsiteatServicesforInsuranceCompanies,underFinancialFilingRequirements.SelectyourLicensedCompanyType.GototheheadingAuditedFinancialReports,thenselectAudit/InternalControlRelatedReports.
AnnualAuditedFinancialReport Exemption
Insurersthatmeetthecriteriain§147.13(c)-(f)are exemptfromfilinganannual auditedfinancialreportand do not need to applyforexemption.
Consolidatedor CombinedAudits
Under§147.7(a),aninsurermayapplyforapprovaltofileconsolidatedorcombinedfinancialreportsinlieuofseparateannualauditedreports.Applicationsmustspecifywhichofthecriteriain§147.7(a)applies,listthenamesoftheinsurersinthepoolandbesubmittedbyJanuary31.
CPAProhibited Non-Auditing ServicesExemption
Annual audited financial reports must be prepared by a qualified independent CPA. A person or accounting firm that provides the insurer, contemporaneously with the audit, any of the non-audit services in § 147.6(b)(6) is not considered independent.
Under § 147.6(h)(3), an insurer with less than $100 million in direct written and assumed premium, in a calendar year, may apply for exemption from the provisions in § 147.6(b)(6) on the basis of financial or organizational hardship.
Applications for an exemption must specify the type of non-audit service(s) under § 147.6(b)(6)(i) – (viii) being provided by the CPA, explain why compliance would constitute a financial or organizational hardship, and be submitted by January 31.
CPA Rotation and Cooling-Off Requirement Relief
Annual audited financial reports must be prepared by a qualified independent CPA. A person involved in the previous year’s audit who is currently holding one of several positions with the insurer described in § 147.6(b)(5) is not considered independent. In addition, under § 147.6(d), a qualified independent CPA’s lead partner or other person responsible for an insurer’s audit may not act in that capacity for more than 5 consecutive years.
Under § 147.6(h)(1), an insurer may apply for relief on the basis of unusual circumstances, from one or both, of the provisions relating to rotation, § 147.6(b)(5) and § 147.6(d). Applications for relief must explain the unusual circumstances, be filed by January 31, and include the following:
1.The number of partners, theexpertiseofthe partners orthe numberof insurance clients inthecurrentlyregisteredaccountingfirm,
2.The premium volumeofthe insurer,and
3.The number of jurisdictions in which the insurer transactsbusiness.
Insurer Audit Committee Designation Exemption
Everyinsurerrequiredtofileanannualauditedfinancialreportmustestablishanauditcommittee.Therequirementsfordesignatinganauditcommitteeandselectingpersonsasmembers ofthe auditcommittee arein § 147.3a(b)- (d).
Under § 147.3a (g)(3), the audit committee designation requirements in § 147.3a(b) - (d) do not apply to insurers subject to 40 P.S. § 991.1405(c)(4) and (5) of the law relating to Insurance Holding Companies, Sarbanes Oxley compliant entities or direct or indirect wholly owned subsidiaries of Sarbanes Oxley compliant entities. Insurers that meet these criteria do not need to apply for exemption.
Insurers not exempt under § 147.3a(g)(3), from the audit committee designation requirements in § 147.3a(b) and (c), may apply for an exemption under § 147.3a(g)(1) on the basis of financial or organizational hardship if the insurers have direct written and assumed premiums less than $500 million, excluding premiums reinsured with the Federal Crop Insurance Corporation and the Federal Flood Program. Applications for exemption must explain why compliance would constitute a financial or organizational hardship and be submitted by January 31.
Insurer Audit Committee Independence Exemption
Everyinsurerrequiredtofileanannualauditedfinancialreportmustestablishanauditcommittee.Under§147.3a(g)(3),theauditcommitteeindependencerequirementsin§147.3a(e)do not applyto insurers subject to 40P.S.§991.1405(c)(4)and(5)ofthelawrelatingtoInsuranceHoldingCompanies,SarbanesOxleycompliantentitiesordirectorindirectwhollyownedsubsidiariesofSarbanesOxleycompliantentities.Insurersthatmeetthesecriteriadonotneed to applyforexemption.
Insurersnotexemptunder§147.3a(g)(3),fromtheauditcommitteeindependencerequirementsin§147.3a(e),mayapplyfortheexemptionin§147.3a(g)(1)onthebasisoffinancialororganizationalhardshipiftheinsurershavedirectwrittenandassumedpremiumslessthan$500million,excludingpremiumsreinsuredwiththeFederalCropInsuranceCorporationandtheFederalFloodProgram.ApplicationsforexemptionmustexplainwhycompliancewouldconstituteafinancialororganizationalhardshipandbesubmittedbyJanuary31.
Insurer Audit Committee Oversight Responsibilities Exemption
Every insurer required to file an annual audited financial report must establish an audit committee. Insurers may apply for exemption under § 147.3a(g)(1) from the audit committee oversight responsibilities in § 147.3a(f), on the basis of financial or organizational hardship if the insurers have direct written and assumed premiums less than $500 million, excluding premiums reinsured with the Federal Crop Insurance Corporation and the Federal Flood Program. Applications for exemption must explain why compliance would constitute a financial or organizational hardship and be submitted by January 31.
Filing Requirements
Filings required under the criteria enumerated above must be filed within the stipulated timeframes and addressed to the attention of the company’s assigned Financial Analystto:
ExemptionfromAuditedFinancialStatementsFinancialAnalysisDivision
PennsylvaniaInsuranceDepartment1345 StrawberrySquare
Harrisburg, PA 17120
UpdateFebruary 5, 2018
OfficeofCorporate FinancialRegulation|BureauofCompanyLicensing FinancialAnalysis
FinancialAnalysisDivision|1345StrawberrySquare| Harrisburg,Pennsylvania17120
Phone:717.787.3952|Fax:717.787.8557| |